On Tuesday night, Intel was the toast of Wall Street. With the financial world growing fearful that the economic green shoots were shrivelling, the technology firm gave the markets their favourite fertiliser – a dose of forecast-beating results.

Paul Otellini, the chief executive, was in buoyant mood, telling analysts that Intel's revenue of $8bn (£4.9bn) in the last quarter was "clearly better than we expected". His prediction that PC sales will enjoy their traditional bounce this autumn when students return to school and university helped to rally shares on both sides of the Atlantic today.

"Intel's second quarter results reflect improving conditions in the PC market segment, with our strongest first to second quarter growth since 1988," said Otellini.

This upbeat tone was a distinct improvement on two months ago, when Intel was the black sheep of the technology world. The world's largest semiconductor maker had just received the biggest single fine ever handed down by the European Union. For a company whose breakthroughs have driven the pace of IT for four decades, being found guilty of anti-competitive practices was little short of a humiliation.

And the shadow of the EU hung over Tuesday's results. The €1.06bn (£910m) fine more than wiped out Intel's $1bn of net profits for the quarter, leaving the firm with a net loss of almost $400m.

Although Intel has got the financial hit out of the way, it is still determined to fight the EU through the courts – a process that could take years. Analysts believe the company might have a good chance of overturning the verdict, but question what damage has already been done to a company that has measured itself by the skills of its engineers, not its lawyers.

Smoking gun

Stacy Smith, chief financial officer, has admitted that hearing Intel condemned for "harming millions and millions of European consumers" was a personal disappointment.

"When I joined Intel 20 years ago it was because it was a company that I believed could change the world in a positive way," said Smith on a recent visit to London. "Intel employees around the world feel bad when they see these things being said about us."

Rob Enderle, principal analyst at the Enderle Group, believes morale at Intel must have been dented by the ruling. "It becomes harder to be proud of who you work for once it's been found guilty of a wrongdoing, and you have relatives asking you how it feels to work for a organisation that's been convicted of criminal activity," he said. "It's not as bad as being a bank worker at the moment, though. They're being accused of stealing from widows and orphans."

Chip-making rival AMD already has a civil case rolling against Intel in the US courts, and lawyers have predicted that the EU ruling will prompt a rash of further cases.

Enderle believes that Intel will argue in the appeals court that the EC never produced evidence to back up its charge that retailers received secret payments in return for buying most or all of their chips from Intel.

Competition commissioner Neelie Kroes accused the chipmaker of going "to great lengths" to conceal the proof of its actions, but the lack of a clear "smoking gun" may be crucial.

"Intel believes that they can make the case in the appeals court that the EU doesn't have the evidence. I must admit they have a compelling argument – if you say there was a cover-up you have to prove that evidence was concealed. However, Intel is now in the unenviable position of being guilty until proven innocent," says Enderle.

John Spooner, analyst at Technology Business Research, agrees that the case will run for years. "There is a lot of 'he said, she said' being banded around. It's hard to figure out right now who has the most accurate portrait." Spooner explained.

One highlight of this week's strong financial performance was a 65% rise in sales of Atom processors, the lower powered chips that drive netbooks. These cheaper laptops are designed for wireless web access and basic computing tasks, and have been a big hit over the last 18 months. Atom sales had fallen in the first quarter of this year so the sales rebound was excellent news for Intel, as it had identified mobile computing as a crucial area for the future.

Atom-powered netbooks typically cost below £400, significantly less than standard laptops, making them ideal for the teenage market. "They're more of a disposable device. My 13-year old son is going to need his own computer soon, so I'd buy him an Atom-powered one because there's a chance it will fall off the back of his bike into a swimming pool," Smith explained.

But the company's ambitions for the chip go beyond merely powering throwaway hardware for feckless teenagers. Personal computers and mobile phones are converging and Intel wants to see Atom powering millions of smartphones.

To that end it has landed several significant deals in the last few weeks. In early June it stretched its wings by buying Wind River, a company that develops software for embedded systems. Two weeks later announced a new relationship with mobile phone group Nokia that should help it get high-speed mobile connectivity on its chips.

It is also splashing out $7bn over the next two years on a new fabrication process that will make Atom more power-efficient.

But analysts question whether Intel can get close to replicating its PC success in the smartphone space. For mobile devices, battery life is everything. Even on the 32nm fabrication process, Atom will still use more power than rival chips based on technology developed by the UK's ARM Holdings. ARM's efficient chips already have a major share of the mobile market, and its customers are now rallying behind a new concept – Smartbooks – that will blur the already fuzzy boundary between low-end laptops and high-spec mobile phones.

Rival chipmaker Qualcomm, which licenses ARM's technology, says its smartbooks will in effect be smartphones with a larger screen and keyboard, and crucially they will also have a constant connection to a mobile network, rather than just using Wi-Fi as most netbooks do.

"It's unfortunate for Intel that the one area that is most exciting is not an area in which it naturally competes well," says Enderle. He believes that Europe's mobile phone operators will play a major role in promoting smartbooks to their customers, helping Qualcomm at Intel's expense.

Few technology stories are complete without Google. The search engine threw the future of the netbook/smartbook market into further confusion last week by announcing an operating system aimed at the netbook market. The Chrome OS was cheered by the ARM community, especially as Intel did not appear on the list of Chrome partners. But the chipmaker later revealed that it was indeed working with the search engine company.

Rumours

When it comes to marketing a new piece of technology, few can compete with Apple. Rumours are flying around the tech world this week that Apple is finally ready to launch a tablet-like device, with a touch-screen and a price tag below $800 (£490). It would fill the gap between the iPhone and the ultra-portable MacBook Air.

"This could be the last chance while Steve Jobs is running the company for Apple to really turn a market," said Enderle. Intel argues that it is well positioned to succeed in the smartphone/netbook space because it enjoys strong compatibility on the software side, especially with long-time ally Microsoft. Spooner agrees that this is an advantage, but also feels that Apple could threaten Intel's ambitions in the mobile space.

"The iPhone is mostly made of ARM chips and no one really cares; they care about the software."

"Yes, a lot of software is tied into the Windows environment. You would want Powerbook and Outlook on your netbook, but look at what Apple have done with the iPhone. If you make it very simple to access your information, surf the web, get a weather forecast, all through one button, then that could trump the familiarity of Windows."